Robinsons Retail Holdings, Inc.

I am Gina Depaling, the company's investor relations officer. Thank you for joining us today to review RHI's unaudited results covering the third quarter and nine months of this year. The panelists for this call are our president and CEO, Ms. Rubina Gokongwefe, our CFO, Ms. Maylene Casiban, the managing director of the supermarket business, Stanley Koff, The general manager of DIY and Feds, Mr. Ted Sogono. The group general manager of Robinsons Department Store and Poisseras, Ms. Selena Chua. The general manager of our CVS business, Suresh Ramalingam. The group general manager of the appliance segment, Mr. Joby Santos. The general manager of Go-Kart, Ms. Edna Belleza. and Senior Advisor for Corporate Finance and Strategy of the Gokongwei Group, Mr. BJ Sebastian. This presentation will cover the company's financial performance in three, two, and nine months of this year. and some recent company developments. A brief question and answer session will follow after the formal presentations. As a reminder, for the Q&A portion, please use the Q&A function of your Zoom dashboard to type in your questions, or you may raise your hand so we can unmute you. We would appreciate if you will limit your questions to a maximum of three so we can accommodate as many participants as possible. you may queue back in to the Q&A for additional questions. If you have any concerns regarding the sound quality of the call, please message Angelo Torres or the RHI core plan. With that, I'll turn it over to our President and CEO, Ms. Regina Boconguite.

Good afternoon. Here are the highlights of our consolidated results for the third quarter of 2022. Consolidated net sales grew by 19.3% to 44.7 billion. Blended same-store sales growth of 15.1%. E-commerce sales accounted for 3.2% of total sales. 120-bits gross margin expansion to 24%. 50-bits 50 bps EBITDA margin improvement to 9.1%. Net income attributable to equity holders of the parent company rose by 60.8% to 1.7 billion pesos, while EPS increased faster by 66% to 1.13 pesos. Store portfolio of 2,261 stores and 2,111 PGP franchise branches nationwide. Robinson's retail store counts to the 2,261 as of September 30, composed of 311 supermarkets, 957 drugstores, 219 DIY stores, 50 department stores, 433 convenience stores, and 291 specialty stores. We also have 2,111 franchise stores of TGP. Serving as fulfillment centers for our store network, our e-commerce operations is complementary to our store network. GoCart, our very own e-commerce site, currently has 14 banners in the platform. RRHI continued its strong performance, posting net sales growth of 19.3% in the third quarter and 16.7% in the nine months to 44.7 billion and 127.1 billion respectively, with both surpassing pre-pandemic levels. Most formats contributed double-digit growth rates in the third quarter and the nine months. Improved sales were driven by 15.1% and 11.8% SSSG in the third quarter and nine months, respectively. In turn, SSSG was largely underpinned by better mobility, revenge travel, back-to-school trends, and return to on-site work, albeit hybrid arrangements. Various price adjustments also contributed to revenue growth. Top-line growth in the third quarter and nine months was supported by double-digit blended SSSG. Gross margin expanded by 120 dips year-on-year in the third quarter to 24%, mainly attributable to better product mix. This led to year-to-date gross margin improvement of 80 dips to 23.7%. Meanwhile, EBIT increased by 53.5% and 54.9% respectively to 2.3 billion and 5.9 billion in the third quarter and nine months. EBIT was driven by strong SSSG GPM expansion and operating efficiencies. Net income attributable to parents increased by 60.8% in the third quarter to 1.7 billion, ending the nine-month period at 4.4 billion, up 62.7%. The surge in profitability is attributed to the strong operating performance, forex gains, and higher dividend income. Coupled with our share buyback program, earnings per share increased at a faster clip by 66% to 1.13 pesos per share in the third quarter and 68.2% to 2.95 pesos per share in the nine months. Meanwhile, core earnings, which exclude interest income from bonds, forex, equity and net earnings of associates and others, came in at 1.4 billion in the third quarter, up 91.4% and 3.6 billion in the nine months, higher by 72.6%. The next speaker will be Stanley Ko, Managing Director of the supermarket segment.

Thank you, Ms. Rubina. The supermarket segment posted net sales of 25.5 billion in the third quarter of 2022, This is 16.8% higher versus the same period last year. Same-store sales growth in the third quarter came in at 9.2%, which is a turnaround from a negative 3.7% within the same period of last year. This is the back of higher transaction count, which is more than compensated for lower basket sizes. A better supply chain situation also helped drive same-store sales growth. Meanwhile, year to date 2022 net sales ended at 72.2 billion up by 12.8% year on year with the same store sales growth coming in at 6.1% versus a negative 11.2% last year. Gross profit margin increased to 22.2% in the third quarter from 21.6% last year. This brought year-to-date gross margin to 21.8%, up by 60 bps year-on-year. This is attributable to better pricing, increasing indent penetration, protection buys, assortment alignment, and discontinuation of bulk sales. EBITDA margins, however, eased from 8.9% in 3Q last year to 8.7% in 3Q this year. The improvement in gross margins was offset by additional expenses from new stores and the new DC, which we are preparing for future expansion of stores in Northern Luzon. As of the end of September 2022, there are 145 Robeson Supermarket, 100 Robeson Easy Mart, 16 Shopwise, 35 The Marketplace, and 15 No Brand stores for a total of 311 stores. Turning you over to Mylene for the drugstore segment.

Thanks, Tan. Moving on to the drugstore segment, the drugstore's debt sales reached 7.7 billion in the third quarter, up by 1.6%, and 21.7 billion in the first nine months, with a year-to-date growth of 9.4%. The blended same-store sales growth of South Star Groups is at negative 3.8% in the third quarter, given the high base last year. Recall that last year's Delta variant surge resulted in a very strong third quarter for the drugstore segment. Year-to-date nine months, same stores has remained healthy at positive 4.2%, supported by the strong performance at the start of the year during the Omicron variant surge. In terms of category performance, prescription drugs remain as a top driver, while non-pharma categories are also growing. Gross margins are up by 70 bps and 50 bps respectively in three Q and nine months, to 20.3% and 20.2%. Margin expansion is largely due to category mix improvements, pricing adjustments, and the alignment of trading terms and supply chain synergies between Rose and South Star. EBITDA margin declined 30 bps to 9.2% in the third quarter due to the negative same-store sales growth. Year-to-date EBITDA margin has expanded by 50 bps to 9% with a significant margin improvement from Rose in the first half of the year. We ended the quarter with 603 South Star, 354 Rose Pharmacy, and 2,111 PGT stores. I'll turn you over now to Ted, the Group GM for DIY and Techs.

Thank you, Ms. Mayling. The DIY segment delivered 1.7% growth in net sales to 3 billion pesos in third quarter of 2022, and 8.9% to 9 billion pesos in the first nine months of 2020. Same-store sales grew 24.1% in the third quarter, with transaction count increasing by 16.1% in the third quarter versus last year. YTD September SSSG ended at 11.8%. Categories that drove top-line growth were hardware and lightning. Gross margins turned around in the third quarter, expanding by 120 bps year-on-year to 33.1% due to new higher margin merchandise. This brought YTD September gross margins to 31.7%. Significant EBITDA margin improvement by 150 bps to 13.2% in the third quarter, is attributable to gpm expansion and better operate operating leverage from stronger sssg trends opex as percentage of sales declined substantially due to the increase in productivity ypd a bit the margin has expanded by 90 bits to 13.5 the diy store portfolio had 187 hand demands 32 true value stores as of end of the period, totaling 219 stores. I'll turn you over to Ms. Selena, Group GM of the department store segment.

Department store net sales more than doubled to 3.6 billion in the third quarter of 2022, which brought the nine-month sales to 9.7 billion, higher by 87.7% year-on-year. SSSG in the third quarter accelerated to 123.9%, pulling up nine months SSSG to 76%. Key drivers for top line sales are the resumption of face-to-face classes and the increase in travel. Our top categories are shoes, bags, sportswear, children's and ladies' departments. Strong top-line growth more than compensated for increased OPEX resulting in EBITDA margin expansion of 690 BPS year-on-year to 7.2% in the first nine months. And in the third quarter alone, EBITDA margin expanded by 910 BPS year-on-year to 8.8%. The department store segment ended the nine-month period with 50 stores. The next speaker is Suresh for the convenience store segment.

Thank you, Ms. Salina. CVS Net Sales Contribute its growth momentum in third quarter 2022 jumping by 37.1% to 1.6 billion to end the nine-month period at 4.4 billion, up by 23.1% year to year. Same store sales growth was up 39.3% in third quarter and 25.4% in nine months, underpinned by the spike in a transaction count and the increase in number of stores open for 24 hours to 397 from 243 last year, on top of the new product launches and consistent marketing promotion related to the rebranding. In term of cluster BPO, commercial areas, where and consistent market . BPO and commercial areas where 63% of our stores are located are leading the growth with SSG of 32% and 23% respectively of nine months. Strong top line growth, better margin driven by the push in the ATI's CVS sales mix ratio and ATI front margins improvement and control of tax lifted EBITDA margin by 480 bps to 9.7% in third quarter and 540 bps to 10.1% in nine months. I'll hand over to Mr. Joey Diem of the specialty segment.

Thank you. Thank you, Suresh.

That sales for the specialty segment posted sustained growth in third quarter this year, up by 23.7% to 3.4 billion, with year-to-date sales at 10.1 billion, up 24.6%. SSSG remained robust at 22.4% in third quarter of this year and 22.6% in the nine months this year. All formats delivered strong performance with double-digit growth. EBITDA margins expanded by 70 bits to 8.9% for the first nine months of this year, supported by healthy SSSG and gross margin gains, slightly upset by the increase in OPEX, as rental rates are already back to pre-pandemic levels. I'll turn you over to the next speaker, Ms. Maylene Casivan.

Thanks, Jody. Moving on to our working capital, RHI's cash conversion cycle was at 24.6 days in the nine months versus 14 days last year, still reflecting faster payments to vendors to be given priority to load up purchases at lower prices before the effect crisis resets. Here's our balance sheet. Cash and cash equivalents plus liquid marketable securities is at 22.7 billion as of end September. We are in a net cash position of 15.4 with borrowings of 7.2 billion. ROA and ROE increased to 4.7% and 8.8% respectively, driven by higher profitability coupled with increased dividend payout and our continuing share buyback program. Lastly, KPEX, moving on to our KPEX, it has increased by 76.2% to 2.7 billion with bulk of or 70% of spending going to the supermarket segment as we added new stores and renovated shop-wise. The supermarket segment opened 27 new stores in the nine months of 2022. So now back to Ms. Rabuna.

On corporate highlights, RRHI was recently recognized as one of Asia's outstanding companies in the consumer discretionary sector in Asia Money's 2022 Outstanding Companies Poll. Over 958 fund managers, buy-side analysts, bankers, and research analysts responded to the poll and ranked listed companies across 12 Asian markets. RRHI was also recently recognized as one of the best employers in the Philippines by the Philippine Daily Inquirer and Statista. RRHI ranked third in the retail and wholesale industry and 87th overall. Robinson Supermarket was also in the list and ranked 233rd overall. Inquirer and Statista pre-researched an initial list of 2,000 eligible Filipino companies and ranked only 300 companies. On September 5, 2022, Robinson Supermarket, together with Century Pacific Food and Impact Company, Friends of Hope, held a groundbreaking of Trees of Wellness, a joint tree planting program in General Santos, South Cotabato. Through the partnership, 100,000 coconut trees are to be planted and donated to smallholder coconut farmers in Mindanao. A total of 3,000 trees have already been donated to farmers in General Santos during the groundbreaking. Digital Bank GoTime was launched on October 20, 2022. Robinson's retail takes a 20% stake in GoTime Bank Corporation, a joint venture of the Gokongwe Group and the Time Group of South Africa. Through the JD, Robinson's Retail is set to leverage its retail footprint in the Philippines, integrating it with an innovative banking platform that Time is introducing to the Philippines. With 15 go-time kiosks already available and more in the coming weeks at Robinson's Retail stores, customers will be able to easily open their accounts at these kiosks as well as deposit and withdraw cash at the POS. PGP recently held its 8th Annual Franchisee Summit on September 16, 2022. The event was attended by close to 500 franchisees. 55 suppliers set up booths in the morning expo and directly engaged with franchisees. PGP awards were also given to franchises, frontliners, and trade partners for their contribution to the success of the business. Earlier this year, RRHI acquired a 40% stake of Mini Stop Japan in Robinson's Convenience Stores, Inc., or RCSI, making RCSI a 100% owned company of RRHI. RCSI is allowed to use the banner name Mini Stop until the end of December 2022. The new banner name is now Uncle John's. The Mini Stop brand has been around for 20 years and gained prominence through our number one product, Uncle John's Fried Chicken. The new brand name is also a celebration of the legacy of Mr. John, our founder, as we embark on a new and exciting journey for our convenience stores business. The respective boards of directors of BPI, Robinson's Bank, Robinson's Retail and JG Summit Capital Services Corporation, or JG Capital, recently approved the BPI-Robinson's Bank merger with BPI as the surviving entity. In exchange for 100% of Robinson's Bank, BPI will issue common shares to Robinson's Bank shareholders, which is owned 60% by JG Capital and 40% by RRHI, which will result in them collectively holding approximately 6% of BPI's outstanding common shares. RRHI will be owning 2.4% of BPI post-closing, which represents the former 40% stake in Robinson's Bank. The merger is expected to unlock synergies across several products and service platforms, expand the customer and deposit base of both banks. And at the same time, by capitalizing on BPI's expertise and network, enhance the overall banking experience of Robinson's Bank customers. The merger should also benefit RHI, as we will be able to tap the extensive customer base of BPI to cross-sell our retail products and services. Also, our suppliers and service providers will be able to tap BPI's commercial loans to finance their working capital requirements as they expand their business with us, which will likewise translate to better service levels for RRHI. The transaction is being targeted to be completed before the end of 2023. Finally, here is our 2022 guidance. Net store additions of 100 to 120 stores with gross store openings of 185 to 190. Organic capital expenditure of 4 billion to 6 billion. SSSG target of between 10% to 12%. Gross margin guidance of plus 50 bps improvement. And e-commerce target of 3% to 4% of total sales. At this point, we will now open up the call for Q&A. Thank you.

Thank you, Ms. Rubina. Good afternoon, everyone. So this is Angelo Torres, Deputy for Core Plan and IR of Robinson Street. I will be moderating the Q&A for this afternoon. All right. So there are a few questions that were sent in beforehand. The first one is, what is the outlook for the fourth quarter? Can you let us know how fourth quarter so far is doing? And are the trends being sustained?

For the month of October, we're seeing a double-digit same-store sales growth, more or less the same trend. as in September. For the first few days of November, we're also seeing stronger growth, even stronger than in October.

All right, thank you, Gina. There's a second question. This is for the supermarket segment. So how are basket sizes in the supermarket segment given the persistently high inflation? Are we seeing down trading? Basket size in the supermarket has been down the past consecutive months. And yeah, it's a clear indication of... down trading, and we're also seeing an effect of what we call strength inflation. All right. Thank you, Stanley. So there's a question from the floor. This is from Diep Nguyen. So what drove the year-on-year drop in EBITDA margins in supermarkets and drugstores despite the year-on-year increases in gross markets? I'll let Stanley answer it. Dropping EBITDA margin is actually higher operating expenses in some stores, particularly the newer ones, and still underutilized distribution center in Pampanga. All right, thank you. How about the drugstore segment?

For the drugstore, the EBITDA margin declined due to the negative SSSG. Note that last year, the same period last year, there was a spike in... and we had extremely high SSSG for the drugstore segment last year.

All right. Thank you, Stanley and Ms. Robina. The next question is from Carissa Magpayo. So this is on the department store. So what drove the year-on-year GPM decline in the third quarter?

Okay. Despite the decline in gross profit margin in the third quarter, total gross profit in terms of amount is up by over 100%. Yeah, so it's actually relative to the increase in our growth in our sales.

All right. Thank you, Selena. The next question is from Nadine Bautista. So what is the breakdown of non-operating items in the third quarter as well as in the first nine months?

Yeah. So for nine months, there's interest income around 100. And then there's FX gain, which is close to 300. And of course, interest expense and loans. For the... Yeah. And then, of course, year-to-date and other expense, there's the one-time gain in the grocery conversion to G2M.

All right. So we'll go over. Okay. Hold on. All right. There's another question from the floor. Please, can you elaborate on the time JV for the bank? What would be the effective stake for Robinson's Retail? What do we plan to achieve from here that the relationship with BPI does not bring in?

The JD is owned 60% by the GoFundMe group and 40% by Time Bank of South Africa. And out of that 60, we own one-third of the 60%. We anticipate that GoTime will bring in more customers to our stores. Because GoTime is a digital bank, and it's really for the advanced customers who can deposit their money through our POS counters, through our tills, and also withdraw through our tills. So that is going to bring in more customers and more transactions to our stores.

Thank you, Mr. Mina. There's another question from the floor. This is from Stephen Oliveros. So hi, a couple of questions from my end. Number one, do you see the 50 BIPs GPM guidance holding over the coming years? That's his first question. And then the second one is, can you provide some indications on the potential one-off that you would book from the R-Bank merger? Thank you. Sure.

On the GPM guidance, this year is an unusual year in a way because there's a lot of price increases this year. Next year, we're expecting it still to increase but at a lower rate than this year.

All right, thank you. There's a second question. Can you provide some indications on the potential one-off that you would book from the RBAF merchant?

We'll let you know the next earnings call.

All right, thank you for that, Mr. Bina. We'll also go over some questions that were sent in beforehand. This is specifically for the discretionary segments. So how is demand in the fourth quarter so far?

As mentioned earlier, same-store sales growth in October and first few days of November remains high. It's actually driven by the discretionary formats, which are registering high double-digit SSSG.

All right. Thank you, Gina. So the next question... For the Ministop or CVS business, can you please give us an update on the Ministop rebranding? So far all the projects we have created a so-called bible for the rebranding. We are following the time frame even though we have some challenges like securing some raw materials for mass production of cyanide. still manageable. We are looking for some of the source for additional raw materials. Like example, one of it is like franchising is on progress, working with all the franchises to secure the packages. Working together with the government agencies to secure all the necessary permits and the changes in the names. and all the removal of Ministop logo interior inside the stores and repaint the whole store to the approved colors. That's all. All right, thank you, Suresh. So the next question is from Veronica Pardos. So her question is, do you disclose specifics on price hikes and percentage specifically for the supermarket and department store segments?

supermarket price hikes then dead high signal yeah i think we did nine to eleven percent within within that range yeah for supermarket between nine to eleven percent department store for department store around ten to fifteen percent all right thank you sandy and selena so there's another question from the floor this is um

from Rainier Ivan Yu. So as a follow up for the RBC and BPI merger, RHI share will shrink to 2.4% in BPI with this size. Is it likely that Robinson's Retail will sell this small block? Also, can you provide indications of what traffic in 3Q and 4Q so far?

we're not even thinking about selling that block because even if we have a small share, I mean, this merger is going to help our business a lot. BPI has a large customer base and As we also mentioned a while ago, because of the size of BPI, we can provide credit to more suppliers and service providers, and in exchange, they can give us better service levels. I think this is following the success of the collaboration between SM and BBO. So it follows that path.

Right. Thank you, Mr. Bina. So there's another question from Rainier. So he's asking for foot traffic trends that we saw in third quarter and fourth quarter so far.

Well, we can see it in our sales. Our sales are doing very well. So it automatically means that foot traffic has increased.

Right. Thank you, Mr. Bina. So there's a follow-up question for the CVS business. How much will be the rebranding be for Uncle John's? Is it CapEx asking about it? How much is the rebranding of Boundary?

Well, we're just going to change the store signs and do a little painting inside.

So... CapEx is minimal for the rebranding.

Yeah.

And we're going to finish off the mini-stop packaging anyway. It's not like we're going to throw it away.

It's all been planned. Yeah, to be deeply before launching. All right. Thank you for that. We have two questions from here. So the first one is, did we exit Robinson's Builders? How much was Robinson's Builders annual a bit before the closures?

We are rebranding the Robinson's Builders into Hansiman.

How much? Yeah. We have some minimal loss there, but negligible in relation to the total DIY segment.

Yeah, very small.

Okay, thank you for that. Another question from Yep. Can you share some initial thoughts on next year regarding revenue growth and profit margins?

We're expecting the discretionary formats of sales to go back to the 2019 level. Right now, it's still lower. And we expect a continued increase in sales growth momentum for the supermarket and drug stores.

Okay, thank you, Gina. We'll go back to some of the questions that were sent in beforehand. This one is your thoughts on GoTime. How are we expecting to leverage on GoTime given its recent launch?

Yeah, I think I already mentioned it a while ago.

Okay, so yeah, this has been answered already. Okay, this one is on ESG. Can you please give us an update on your ESG initiatives so far this year? What will be the focus for next year on this front? For this one, we have our ESG manager, Paul Bayant, who's available to give us a call.

Good afternoon, everyone. So far, we have been focusing on communicating to various ESG raters with the intention to improve our ESG scores and ESG disclosures specifically. We have been also continuing to improve our ESG data collection so that we can set more ESG targets in the coming years. And we also continue, as we have seen, we have added new programs, community programs, such as the Peace of Wellness. And you will expect that in the coming years, we will be focusing more on the S part of the ESG or the social part. Not taking aside... But also not neglecting our initiatives on climate action and in terms of our plastic reduction and diversion. That's it for now.

All right. Thank you very much, Paul. So we have a few more questions from the Q&A chat box. Next one is from Clarissa Magpayo. So she wants to clarify the reason for the GPM contraction in the third quarter for the department store segment. Was it due to product or category mix or some other reason?

OK. The slight decrease in gross profit is actually because our sales growth was like 131% increase. So relative to the sales growth, the gross profit as a percentage of sales actually went down. Our front margins actually improved by 10 bits.

Thank you, Ms. Selena. So there's a next question. This is from Prasin Retanaller. So can you provide some guidance for story network expansion in the next few years? Would supermarkets and drugstores remain key priorities? What about Uncle John's CVS expansion plans? Thank you.

I think for next year, we're still looking at more than 40 stores for supermarket. And then for the drugstores, another 100. The other formats will also be increasing their store opening. And then for our CDS business in particular, since they've been reporting declining store numbers over the last two years. They'll be opening new stores starting next year.

All right. Thank you, Gina. Another question from Hiep Nguyen. So what is the remaining budget for the share buybacks? We plan to do another top-up.

For now, we are having difficulty finishing the last 600 million pesos share buyback because of very thin volumes. I don't know when we can finish that actually.

All right. Thank you, Gina. Another question from Rainier Ivan Yu. So are we looking at adding more brands in specialty retail to replace the brands that exited during the pandemic?

I think we're looking into adding more stores with our existing brands. Retail is a scale game.

So you have to have more stores of one brand instead of a picket fence where you have very few stores and so many brands. You're not going to get scaled that way.

So if we're going to add stores, it has to be within the same segment.

Thank you, Mr. Bina. So far, we have no more questions from the floor. Maybe we'll give them a few more seconds to read. type in some of their thoughts or anything they want to clarify.

All right, I think there are no more questions from the floor.

Just what does Vijay want to say? Vijay, what do you want to say more?

You want to expound more on the BPI-ARBAC merger? I don't think he can hear me.

Madame, were you addressing me?

More on the BPI-ARBAC merger or I said enough?

No, I think, like you said earlier, the merger is actually a very good development for Robinson's Retail. Having a much larger bank with a much larger network of branches and facilities, not to mention its much larger customer base, will really widen the kind of ecosystem benefits that retail can have with a banking network. That is really one of the pluses of this deal. Of course, to be part of a top three bank in the Philippines with a lot more quality assets that can improve its earning capabilities. I think will also benefit Robinson's retail in terms of it being a financial investor in the bank, sharing in the dividends that we expect to be declared in the future from BPI. BPI is known to be a very consistent dividend payer. So that will, of course, be a substantial improvement from a situation where RHI before was really a shareholder of a growing bank that really could not declare dividends yet because of its growth trajectory. But now, Robinson's Retail will also benefit from being a shareholder of a dividend-paying bank with a much larger trading volume. Hopefully, the trajectory of the stock price, also BPI, will benefit the Robinson's retail going into the future. So those are just some of the financial benefits that we see, not to mention the strategic and operational benefits that you already mentioned earlier, Ms. Rabinick.

Thank you, Sir BJ.

There are new questions from the Q&A box. The next one is from Ali Hussain. So what is the sales contribution of GroSari in the third quarter of 2022? It's about 4.5%. Okay, that's 4.5%. And there's a follow-up also on GroSari from Pasin. So any updates on this business?

What do you mean by updates?

Happy days? Yeah. Maybe there's GMV.

It's growing.

It's growing so fast.

It's name says grow, sorry. It's really growing.

All right. Thank you for that. We have no more questions from the floor. So I'd like to turn it over to Madame for closing.

Okay. If there are no other questions, thank you very much. And I'll see you at the next earnings call.